Preparing For Your Pre-approval
Owning your own home is one of the best feelings in life. Most people will need a mortgage however, since having enough cash to purchase your home outright is few and far between nowadays.
The problem is that, you don’t simply need a mortgage – you need to qualify for one too!
While qualifying for a mortgage can seem difficult at first glance, the process can actually be made relatively simple.
This is especially so with a mortgage broker who takes the time to educate you on what documents you need for a pre-approval and how much you will eventually be approved for.
Before you get started…
All About Your Credit Report
One of the most important factors to consider when qualifying for your mortgage is your credit rating. The good news is that your credit report is a working document. This means that you have the ability over time, to repair any damaged credit and increase your credit score.
You will want to have your score be as high as possible, so consider the following ways to increase your score in a relatively short amount of time:
Look at your credit report
In order to know what is affecting your credit report, you first have to look at it. Fortunately, this is not a difficult thing to do.
You can check out CBC’s article on How to Check Your Credit Report (http://www.cbc.ca/news/canada/how-to-check-your-credit-report-1.1185975)
I personally walk my mortgage clients through their credit report, going over each line and explaining any point that you may have a question about.
My mortgage clients tend to find this very reassuring – instead of downloading your credit report at home and trying to figure out what it means, we walk through it together step by step. If required, there are always ways to increase your credit report score and I will advise you on the ways to do so.
Dispute any incorrect negative information
If there is any negative information on your credit report that should not be there (i.e. a collections account for something unrelated to you), you must dispute it directly with the reporting agencies. This isn’t complicated either; they have streamlined this process by allowing you to file disputes online.
Your Mortgage Broker should also be able to help you with various aspects of your credit report. I have a direct line with credit reporting agencies and will be able to expedite your dispute should it be required to do so.
Get a credit card
No matter what type of lender you are dealing with, they are more likely to supply a loan if they see that someone else is willing to lend you money. That is why it is important to have a credit card. If you have had trouble getting a credit card in the past you can always get a secured credit card. This works more like a bank account than a credit card and allows you to build credit.
Request increases on all of your credit cards if required
Your credit score is positively increased the more lenders are willing to give to you – it only takes a few minutes to ask for a credit increase with your credit card companies…and most of these companies are happy to increase your credit. This does not mean you’re free to rack up those cards! – just remember it is a reflection of how credit-worthy other lending companies deem you.
Lower your debt
Although it’s important that your credit report reflects that lenders are willing to lend you money, being burdened by too much debt will lower your credit score. This is due to the fact that mortgage lenders want to make sure that you will be able to afford to pay your new bill. If possible, pay off your debts prior to obtaining a pre-approval or to less than half of your pretax monthly income; this shows that you have plenty of extra space to fit a mortgage.
The Next Two Steps
Your Income Verification
A lender will consider how much of your total income you will be spending on housing. This helps lenders decide whether you can comfortably afford the home. Also, lenders generally want to know that you have income stability…
We never require our clients to bring in their income verification or documentation at our first meeting. As experienced mortgage brokers, we know that the type of income verification needed to provide will be different for each person.
However, the general rule for documentation would be:
~Salaried individuals: One letter of employment and one pay stub
~Hourly earners: most recent two year history of your T4
~Self-employed individuals: Two years history of your T1 Generals and Notice of Assessments
Get a down payment together
When thinking about how to qualify for a mortgage, income is king – you need to be able to pay for your home… However, it’s good to know that there is a saving grace in that if you would normally not be able to afford a specific mortgage, a lender is much more likely to say ‘yes’ if you furnish a larger down payment — the more you put down, the better when it comes to mortgages. This is because a down payment both shows a financial commitment and it lowers the amount of the loan corresponding to the value of the property.
I had an interesting file once where clients could only prove a specific income… the clients were purchasing a new primary residence and moving from their existing condo. We were able to get approved for a new mortgage by taking equity out of their current condo and putting a larger down payment on their new home. Lowering the percentage of the mortgage vs the value of the home allowed us to get financing to purchase their residence.
Get help from a mortgage broker
As expert mortgage brokers, it’s our job to get you the best mortgage while making sure you understand the mortgage process as well as your actual mortgage. We educate you on what it takes to get the mortgage and provide you with expert advice, taking advantage of our experience and multitude of lenders and options available to us.